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Finance Dictionary and Glossary of Investment Terms
Buy on margin
Borrowing to buy additional shares, using the shares themselves as collateral.
The practice of buying stock with money borrowed from a broker. The loan is collateralized by the security you''ve purchased, which is held in a margin account. The broker will charge you interest, but the rate is usually attractive compared with other forms of debt, since it is secured by an easily marketable stock. Still, you need to make enough on the stock to pay commissions and cover interest. Trading on margin can improve investment returns, but it''s risky. If you buy a stock on margin and it goes down, you''ll need to pony up more cash to maintain your collateral, or watch your broker sell out your position. "Margin calls" of this kind were a major feature of the 1929 meltdown. Uncle Sam imposes strict limits on margin trading of stocks.